Cash flow aggregation system and method

ABSTRACT

A data construct represents a financial asset in a data processing system. The data construct comprises description data, a cash flow map, and process instructions. The description data further comprises creation, purpose, and transaction information data describing the financial asset. The cash flow map further comprises information on cash flows that flow into the financial asset. The process instructions include information on cash flow processing for the cash flows that flow into the financial asset.

FIELD OF THE INVENTION

[0001] The present invention relates generally to investment services,systems, and methods. More particularly, the present invention relatesto cash flow systems and methods.

BACKGROUND OF THE INVENTION

[0002] Introduction of the mortgage backed security (MBS) has made thedream of owning a home possible for a much larger number of individuals.Frequently, when a borrower takes out a loan to purchase a home, thatloan is subsequently pooled with other loans and used to create an MBS.The MBS is an investment instrument that can be sold to investors in theglobal capital markets. Upon sale of the MBS, lenders can turn aroundand make new loans using proceeds from the sale. In effect, the MBS is away for the global capital markets to provide capital for loans to fundhome ownership. The increased availability of capital reduces interestrates as compared to the interest rates that would otherwise beavailable, and therefore makes home ownership more affordable for anincreased number of individuals.

[0003] While the mortgage backed security approach has workedexceptionally well, home ownership rates could be further improved ifloans could be used to create new forms of mortgage backed securitiesand/or other types of investment instruments or other assets that moreoptimally align with investor needs. A more optimal alignment wouldresult in further increases in the availability of capital, furtherreductions in interest rates, and ultimately increased home ownershiprates.

[0004] Different investors typically have different investment needs.For example, different investors typically have different investmenthorizons. Thus, some investors may have short investment horizons andmay be seeking one or more short term investment instruments, whereasother investors may have longer investment horizons and may be seekingone or more long term investment instruments. Different investors alsotypically have different risk criteria including different appetites forrisk. For example, different investors may seek to avoid or acceptdifferent types risk depending on the types of risk already present intheir investment portfolio. In the case of diversification, an investormay seek to diversify the investments it holds in order to avoidoverexposure to any one type of risk. In the case of more sophisticatedrisk hedging strategies, an investor may consider itself to beoverexposed to a particular type of risk, and may purchase investmentsthat provide an effective hedge or counterbalance against that risk.Hedging is particularly useful for businesses that, by the nature oftheir business, may become exposed to certain types of risk. Bypurchasing investment instruments that are exposed to an opposing risk,a counterbalancing effect is achieved that promotes financial stabilityfor the business. Most businesses engage in at least some form of riskmanagement, and a business that effectively manages risk is more likelyto survive in the long term for the benefit of its investors, itsemployees, and its customers.

[0005] Therefore, the ability to provide investment instruments ofvarying investment horizons and risk characteristics is highlybeneficial to investors. Even more beneficial would be the ability tomore precisely parse risks and other characteristics from a pool ofloans so as to create investment instruments that more precisely meetthe needs of investors. To the extent this is achieved, homeownershiprates and the economy as a whole are likely to benefit.

[0006] In the global capital markets, various investment instrumentshave been created that provide investors with the ability to invest ininstruments of varying investment horizons and risk characteristics. Forexample, in the context of the secondary mortgage market, real estatemortgage investment conduits (REMIC) instruments have been devised. TheREMIC is a multiple-class mortgage cash flow security backed residentialmortgage loans which generally have been pooled together into MBStrusts. REMIC securities restructure interest and principal paymentsinto separately traded securities. By redirecting the cash flow from theunderlying standard MBS, the issue can create a security having severalclasses, also called tranches, which may carry different coupon rates,average lives, prepayment sensitivities and final maturities. Investorswith different investment horizons have the opportunity to own a tranchethat satisfies their investment criteria and portfolio needs. Thesetranches may be designed to emphasize or deemphasize the option risk ofthe underlying mortgage. Therefore, REMICs have provided a usefulinvestment tool for some investors.

[0007] REMICs, however, are limited in terms of the number of differenttypes of investment instruments that can be created. REMICs are createdbased on MBS, and the typical MBS pooling process typically causes loanlevel cash flow data to be lost. Therefore, there typically are only somany ways to carve up an MBS to achieve investment instrumentscharacterized by different risks, maturities, and so on. As a result,further improvements are needed.

[0008] Often, in the creation of these financial assets, there areinvolved financial and/or tax accounting rules and/or practices thatneed to be addressed in transitioning from one type of financial assetto a different type of financial asset. The accounting rules can beinternal rules or practices, established for improving the tracking andmanagement of cash flows associated with the financial assets.Alternatively, these accounting rules can be rules or regulationsestablished by regulatory agencies.

[0009] Further, there is also a need for tools that accommodate andaccount for transactions in which cash flows from borrower payments thatdo not pass through straight to investors or other owners of loansassets, as in structured transactions. Such arrangements are oftenuseful for providing adequate compensation to owners or otherstakeholders in such loan assets or for other reasons. Even further,there is a need for a system that can be used to create cash flowaggregation structures and methods of making the same. Further needed issuch a system that can be tailored to comply with accounting rules orpractices.

[0010] A system or method that meets one or more of these needs would behighly desirable. It should also be understood that the techniquesdescribed and claimed herein may also be applied to meet other needsinstead of or in addition to the above needs. For example, although thesystems and methods discussed herein are described in terms of homemortgages, it will be apparent that the systems and methods to othertypes of assets, loans and/or other investments.

SUMMARY OF THE INVENTION

[0011] An exemplary embodiment is related to a financial asset embodiedas a data construct in a data processing system. The data constructcomprises description data, a cash flow map, and process instructions.The description data further comprises creation, purpose, andtransaction information data describing the financial asset. The cashflow map further comprises information on cash flows that flow into thefinancial asset. The process instructions include information on cashflow processing for the cash flows that flow into the financial asset.

[0012] Another exemplary embodiment is related to a packet that packagescash flows from financial instruments. The packet includes header datahaving creation, purpose, and transaction information; a data mapincluding information on cash flows; and process instructions includinginformation on cash flow processing.

[0013] Another exemplary embodiment is related to a method of creating apacket. The method includes selecting assets, applying business rules tothe selected assets, mapping cash flows associated with the selectedassets, and applying packet creation rules to form at least one packet.

[0014] Another exemplary embodiment is related to a system that packagescash flows from financial instruments. The system includes means forselecting assets, means for applying business rules to the selectedassets, means for mapping cash flows associated with the selectedassets, and means for applying packet creation rules to form at leastone packet.

[0015] Other principle features and advantages of the invention willbecome apparent to those skilled in the art upon review of the followingdrawings, the detailed description, and the appended claims.

BRIEF DESCRIPTION OF THE DRAWINGS

[0016] The exemplary embodiments will hereafter be described withreference to the accompanying drawings, wherein like numerals denotelike elements, and:

[0017]FIG. 1 is a block diagram showing a cash flow engine in accordancewith an exemplary embodiment;

[0018]FIG. 2 is a flow chart showing cash flow decomposition inconnection with the cash flow engine of FIG. 1 during a loan/assetconfiguration procedure;

[0019]FIG. 3 is a block diagram showing cash flow decomposition inconnection with the cash flow engine of FIG. 1;

[0020]FIG. 4 is a flow chart showing cash flow decomposition inconnection with the cash flow engine of FIG. 1 during loan/assetprocessing;

[0021] FIGS. 5-7 are examples showing operation of the cash flow engineof FIG. 1;

[0022]FIG. 8 is an example of a graphical user interface usable inconnection with the cash flow engine of FIG. 1;

[0023]FIG. 9 is a diagrammatic representation of a packet in accordancewith an exemplary embodiment;

[0024]FIG. 10 is a diagrammatic representation of a flow diagramdepicting exemplary a packet in accordance with another exemplaryembodiment;

[0025]FIG. 11 is a diagrammatic representation of packet contents in anexemplary packet;

[0026]FIG. 12 is a flow diagram depicting exemplary operations in amethod of creating packets;

[0027]FIG. 13 is a diagram depicting exemplary packet creationoperations and stages in a packet creation process in accordance with anexemplary embodiment; and

[0028]FIG. 14 is a block diagram of a data processing system usable toimplement the cash flow engine and packeting systems of FIGS. 1-13.

DETAILED DESCRIPTION OF EXEMPLARY EMBODIMENTS

[0029] I. Cash Flow Engine

[0030] Referring now to FIGS. 1-2, FIG. 1 is a block diagram of apreferred cash flow engine 10 and FIG. 1 is a flowchart showingoperation of the cash flow engine 10 of FIG. 1. FIG. 1 shows anarrangement in which the cash flow engine 10 is used in connection witha plurality of loans 12 (individually labeled as Loan 1 through Loan M)and a plurality of financial assets 14 (individually labeled asFinancial Asset 1 through Financial Asset N).

[0031] In the system of FIG. 1, each of the loans 12 is decomposed intoa plurality of sub-loan level cash flows 15 (step 22, FIG. 2). Thedecomposition may be performed by a decomposition/repackaging tool 16,described in greater detail below, in response to user inputs during aloan set-up procedure, for example. The loans 12 may, for example, behome loans or other types of loans. The cash flows 15 may be defined thesame or differently for each of the loans 12. The cash flows 15 mayinclude one or more positive cash flows associated with, for example,principal payments made by the borrower, interest payments made by theborrower, fees paid by the borrower, and so on. The cash flows 15 mayalso include one or more negative cash flows (or reductions in positivecash flows) associated with expenses or losses incurred with respect toparticular loans, such as when a borrower defaults. Such losses/expensesare “negative” cash flows when considered from the perspective of theowner(s) of the financial assets backed by such cash flows. Preferably,the decomposition is performed such that substantially all sources ofpotential revenue/expenses for each of the plurality of loans isidentified and associated with one of the cash flows 15.

[0032] Referring now also to FIG. 3, exemplary cash flows according toone embodiment are shown. A cash flow may be source of payment, whetherof principal, interest, or fees, received in connection with a loan. Acash flow may also be any type of expense incurred in connection with aloan. A given loan may produce positive cash flows associated withprincipal 30, interest 32, servicing fees 34, guarantee fee 36, mortgageinsurance 38, prepayment penalties 40, borrower paid fees 42, serviceradvances 44, and servicer recoveries 46, or negative cash flowsassociated with loss/default 48 and REO activity 50: TABLE I PossibleMortgage Cash Flows Category Possible Cash Flows Principal Scheduledprincipal (amount payable based on scheduled amortization), actualprincipal (what was applied as principal), unscheduled principal (amountfrom borrower applied in excess of scheduled), advanced (amount notcollected from borrower but remitted to investor), shortfall(underpayment from borrower, usually meaning less than full scheduledamount) Interest Scheduled Interest (amount payable), actual (what wasapplied), excess (interest collection in excess of amount payable),advanced (not collected from borrower but sent to investor), shortfall(underpayment from servicer), capitalized (negative amortization), othercapitalized interest (delinquency), unrecoverable prepayment interestshortfall Servicing Gross servicing fee, core servicing fee (usuallyFees relates to tax), excess servicing fee, safe harbor (tax) GuaranteeGross guarantee fee (GF) (total charged to the Fees lender), cash flowsfor internally tracking costs (e.g., costs associated with credit risk),base GF, GF variance, and other GF adjustments Mortgage Lender paidmortgage insurance (MI), borrower Insurance paid MI, portion of GFconstrued to be MI, back-end MI Prepayment Prepayment penalty,prepayment penalty Penalties (borrower-paid), yield maintenance fee(borrower-paid). Borrower- Borrower-Paid Fees, late payment fee, paidfees conversion/modification fee. Seller Advanced principal, advancedinterest, advanced advances guaranty fee, servicing advances (usuallyrelates to defaults, e.g. T&I). Servicer Recovered principal advances,recovered interest recoveries advances, recovered guaranty fee advances,recovered servicing advances. Default Net realized loss (total amountpayable to activity investors less all recoveries), foreclosureexpenses, attorney fees, recoup of non-recoverable advances (detailed bytype below), loss due to modification, loss due to appraisal reduction,loss due to deficiency valuation, non-capitalized deferred interest(e.g. workout), interest paid on advances. REO Foreclosure saleproceeds, rental income, Activity insurance proceeds, tax expenses onREO, repair expenses on REO, sale/marketing expenses on REO, REOproperty maintenance expenses.

[0033] Herein, the term “cash flow” is used to refer generically to thesource of payment (e.g., the right to receive borrower late fees) aswell as the cash that flows from the source of payment (e.g., the cashpaid by the borrower in the event that late fees are incurred). It maybe noted that some of the above cash flows in Table I are aggregate cashflows that can be further decomposed. Other cash flow pertinentinformation that may be tracked includes unpaid principal balance (UPB)(including scheduled UPB and actual UPB), participation percentage(including principal participation percentage, interest participationpercentage, and servicing fee participation (basis points)), discountrate (used to calculate yield maintenance or prepayment penalty),appraised balance, foreclosure sale date, and REO sale date. AlthoughTable I provides one example of cash flows that may be identified for agroup of loans, it will be appreciated that other ways of parsing loansinto a series of cash flows are also possible. Also, it may be desirableto establish a first set of cash flows for accounting purposes and asecond set of cash flows for tax purposes. In general, cash flows may bedecomposed in any manner desired including to any level of desiredgranularity.

[0034] Additionally, it is also possible to aggregate cash flows from aborrower perspective or other entity perspective. For example, a seriesof loans (e.g., all to the same borrower) may be aggregated into ahigher order cash flow and then the aggregation of the loans may bedecomposed. Also, cash flows may further be derived from loans, pools,securities, commitments, and other packets. It is also possible to addcash flows to existing loans or other assets, for example, so that a newcash flow (e.g., for a new line of credit) may be established withouthaving to set up a new loan. This latter feature provides additionalflexibility to modify a borrower's loan over time.

[0035] During the decomposition of the cash flows 15, informationregarding the initial event that gave rise to the creation of cash flows15 is preferably tracked and stored for accounting purposes. As detailedbelow, accounting rules are preferably applied to the financial assets14 (e.g., packets) that are backed by the sub-loan level cash flows.Therefore, this information may be used to properly account for theevent that gave rise to creation of the cash flow such that accountingrules and regulations can be satisfied. Additionally, the informationmay be used to determine the eligibility of cash flows 15 for inclusionin particular types of assets based on whether the accounting rules andregulations are satisfied.

[0036] Referring again to FIGS. 1-2, the decomposition/repackaging tool16 is then used to repackage the cash flows 15 into a plurality offinancial assets 14 backed by the cash flows 15 (step 24, FIG. 2).Herein, the term “financial asset” is used generically to refer to anyasset that is backed by one or more cash flows, and includes such thingsas assets that are created entirely for internal data tracking purposes(e.g., in the case of packets which do not represent securities), aswell as assets that have external significance (e.g., in the case of MBSor other financial instruments). The financial assets 14 may each backedby one or a combination of the cash flows identified above. It may benoted that the financial instruments 14 are preferably created such thatthe collateral for the financial instruments 14 is the plurality ofsub-loan level cash flows 15 and not the plurality of loans 12. Also, itis not necessary to securitize the loans 12 and then create financialinstruments by performing strips of the security; the financialinstruments may be backed directly by the cash flows 15. Such financialassets 14 may be held in the portfolio of, for example, theowner/operator of the cash flow engine 10, or may be sold to a thirdparty investor.

[0037] It is possible to use the cash flow engine 10 to create a varietyof financial instruments backed by the loan level cash flows 15, whichis particularly useful in a situation where the financial asset 14 is afinancial instrument configured for sale to a third party investor. Aspreviously indicated, in the past, loans have been pooled to form MBS.The cash flow engine 10 is capable of creating such MBS, as well asother types of financial instruments. The financial instruments may bepass through type instruments such as MBS, or structured instrumentssuch as debt instruments (subordinated debt, unsecured corporate debt,callable debt securities, bonds, etc.), options, swaps, insurancepolicies, or other instruments where the connection of the asset to thecash flow is less direct than in a pass through instrument. Anycombination of one or more cash flows may be selected to create afinancial asset. Preferably, such cash flows are aggregated with likecash flows from other loans in creating the financial asset. Forexample, a financial instrument may be created that is backed only byone or more specific types of borrower paid fees, and not by principaland interest. The financial instruments may be constructed so as toaccentuate or deaccentuate specific types of risk (e.g., credit risk).The financial instruments may have different risks/payment profilesdepending on which of the cash flows shown in Table I backs thefinancial instrument. Such financial instruments may be used to transferinterest rate risk, credit risk, and other types of risk to third partyinvestors, and provide the third party investors with the opportunity topursue more aggressive risk profiles and thereby greater potentialyields.

[0038] For example, the cash flow engine 10 may be used to issuenon-guaranteed corporate debt backed by one or more of the cash flows15. Therefore, for example, it is possible to create financialinstruments that transfer risk in the form of debt to a third partyinvestor, and reward the third party investor for taking on such risk.Thus, for example, a debt instrument may be constructed in which theinvestor is paid with cash flows derived from principal payments inconnection with a group of loans, but a credit loss trigger may beincluded in which the investor is no longer paid if credit losses exceeda certain level. Such an arrangement is advantageous for the investorbecause the investor is rewarded for assuming the credit risk associatedwith the loans. The trigger events used in constructing such debtinstruments may be directly related to the group of loans or may berelated to some other event.

[0039] As another example, financial instruments may be created that arebased on special loan programs. For example, for borrowers havingmarginal credit, a loan program may reward such borrowers with a reducedinterest rate after such borrowers have made a certain number loanpayments in a timely manner (e.g., a reduction from 7.5% to 6.5%). Thepotential that the borrower will make timely payments and reduce thecash flows associated with their loan represents a risk that may be soldto a third party investor. For example, for a group of loans consistingof such loans, a first financial instrument may be created that isbacked by the underlying 6.5% interest rate, and a second financialinstrument may be created that is backed by the additional 1% portion ofthe interest rate that is subject to elimination after the loan paymentsare made in a timely manner. The first financial instrument thereforewould be relatively insensitive to the risk associated with the rewardprogram, whereas the second financial instrument would have an enhancedsensitivity to such risk. Depending on the portfolio needs of aparticular investor, the second financial instrument may fit within theinvestor's portfolio, for example, by serving as a hedge against otherrisks.

[0040] Many different risk transfer mechanisms may be created using oneor more of the different possible cash flow identified in Table I. Thecash flows can be decomposed to any desired level of granularity. Due tothe high level of granularity of the cash flows can be identified (e.g.,as in Table I), and due to the fact that different cash flows representdifferent types of risk, it is possible to parse out risks from loanswith a high degree of precision, and transfer those risks to investorswith specific investment needs.

[0041] The cash flow engine 10 may also be used to create financialinstruments that serve other purposes other than transferring risk.Thus, as yet another example, when a lender sells a loan to a secondarymarket participant, oftentimes, the lender will retain a portion of theinterest as a servicing fee. In some instances, the servicing fee thatis charged to a borrower is in excess of the amount that the InternalRevenue Service considers to be a core servicing fee. The core servicingfee is the portion of the servicing fee charged to the borrower that thelender can retain as compensation and still have the sale of the loan beconsidered a “sale” for tax purposes. Therefore, in order to receivefavorable tax treatment for the sale of the loan, lenders typically willretain only the core servicing fee, and the excess servicing fee (theremainder of the servicing fee charged to the borrower) is sold to thepurchaser. In some instances, it may be desirable to create a financialinstrument that is backed by the excess servicing fee in order tooptimize the value that is received for this fee.

[0042] As yet another example, financial instruments may be created thatcorrect certain anomalies that may exist in certain situations. Forexample, with regard to servicing fees, there is a mismatch between themanner in which servicers are paid and the servicers' cost structure.Servicers typically retain a portion of the interest that is paid by aborrower each month as compensation for performing the servicingfunction. Because the interest portion of a borrower's monthly paymentdecreases each month as equity increases, the servicer's compensationalso decreases incrementally each month. However, the cost of servicingloans does not decrease each month, particularly when costs associatedwith defaulted loans are taken into account. Therefore, it is possibleto repackage the cash flows from the underlying loans to create apayment structure for the servicer that is more closely aligned with theservicers' cost structure.

[0043] In order to assist with the generation of such financialinstruments and other assets, the cash flow engine 10 may also becoupled to financial engineering tools 18 (step 26, FIG. 2), which aretools usable by an operator to analyze, design, develop, and/orimplement the financial assets 14 and/or related processes. For example,the financial engineering tools 18 may be computer-implemented toolsusable for analyzing financial data, assessing and predicting financialperformance, valuing financial assets, analyzing financial risk, and soon, regarding the loans 12, the financial assets 14 and/or the cashflows 15. To this end, the financial engineering tools 18 preferablyinclude tools responsive to operator inputs for creating and displayinginteractive graphs and other visual representations of financial datausing mathematical models and simulations. Such models and simulationsmay be constructed using the financial engineering tools 18 and may takeinto account market conditions, contract terms, and other factors, withdifferent models being available for different financial instruments toallow the model that best represents market dynamics and other factorssuch as contract terms to be selected.

[0044] Additionally, certain accounting rules may apply that may affectthe manner in which cash flows may be most optimally stripped and themanner in which financial assets may be most optimally created. In theabove example, where it is desirable to create a financial asset basedon the servicing fees for a loan or a collection of loans, accountingrules may apply that state that the servicing fees cash flow is aninterest strip and must be accounted for as an interest only strip. Aninterest only strip is a type of strip that subjects the cash flow toderivative accounting, meaning that a lender must recognize gains orlosses when the market value of the underlying asset increases ordecreases in value. Therefore, the financial engineering tools 18preferably include tools usable to assess financial risk, predictfinancial performance, and so on, of financial assets in view of suchaccounting rules.

[0045] Referring now also to FIG. 4, after the financial assets 14 arecreated using the decomposition/repackaging tool 16, payments inconnection with the financial assets 14 are funded by the cash flowsfrom the loans 12. For example, in the case of an investment instrumentthat has been sold to a third party investor, the cash flows may be usedto fund payments to the investor (either on a straight pass throughbasis or on a structured basis, depending on the type of financialinstrument created).

[0046] The cash flow engine 10 includes accounting/reporting tools 17which receives payment information regarding incoming cash flowsassociated with the loans 12 (step 52). The payment information may bereceived from a computer system that supports loan servicing. Thepayment information may, for example, include information regardingscheduled principal payments made by the borrower, unscheduled principalpayments made by the borrower, interest payments made by the borrower,fees paid by the borrower, and so on. The borrower payments are thendecomposed into the various defined cash flows (step 54). If thecomputer system that performs loan servicing supports such reporting,the payment information may be received in a more granular form andinclude information regarding each of the cash flows processed by thecash flow engine 10. Otherwise, the information regarding such cashflows may be computed by the cash flow engine 10 based on theinformation reported by the servicing computer system. The paymentinformation is then processed in accordance with stored mappinginformation regarding the manner in which cash flows flowing into thefinancial assets 14 are traceable back to the cash flows 15. Thus, afterthe mapping information is accessed, portions of the loan paymentscorresponding to the level cash flows 15 for each of the loans 12 arerepackaged and allocated to a respective one of the financial assets 14based on the mapping information (step 54). As a result, informationregarding investment proceeds due to the owner(s) of the financialassets 14 is generated, and the owner(s) of the financial assets 14 maybe paid with funds derived from the loan payments and in accordance withthe repackaging of the cash flows 15 to the respective ones of thefinancial assets 14 (step 56).

[0047] According to an exemplary embodiment, the accounting/reportingtools 17 apply accounting rules directly to the financial assets 14,even though many of the financial assets 14 are not necessarily loans orsecurities. As has been described, the financial assets 14 are createdby repackaging the cash flows 15. The accounting treatment that is givento each financial asset 14 depends on the nature of the cash flows 15which back the particular financial asset. For example, if a pluralityof cash flows 15 derived from borrowers in connection with acorresponding plurality of different loans is repackaged to form one ofthe financial assets 14, and the nature of the cash flows requiresinterest-only accounting, then that financial asset 14 may be accountedfor as an interest only strip. Thus, for each of the financial assets14, the nature of the cash flows that are repackaged to form thefinancial asset 14 is analyzed to determine the proper accountingtreatment for the financial asset 14. After the appropriate accountingtreatment is determined (typically during steps (22-26), accountingcalculations may be performed during the life of the financial asset inaccordance with the determined appropriate accounting treatment. To thisend, the accounting/reporting tools 17 therefore preferably includestools for performing typical accounting calculations such as presentvalue, depreciation, and so on. Additionally, the payment informationreceived by accounting/reporting tools 17 includes information pertinentto accounting such as information concerning the origin and timing ofthe payments or other cash flows and other relevant information.

[0048] Thus, the cash flow engine 10 permits the financial engineeringtools 18 to be used in connection with the purchasing and repackaging ofloan assets into financial instruments. Particularly, each of the loans12 has associated with it a number of different cash flows which areparsed and reconfigured into a variety of different financialinstruments 14. The cash flow engine 10 decomposes each loan into itsconstituent parts and allows financial engineering tools 18 to beapplied at the loan level rather than only at the pool level.Additionally, the cash flow engine 10 is able to process cash flowinformation at a much higher level of granularity than has been possiblein the past. For example, not only is the cash flow engine 10 able totrack interest payments from each loan, but the interest payments may besubdivided into constituent cash flows such as servicing fees, G-fees,and pass through interest. The cash flow engine 10 also recognizes theexistence of other types of cash flows which have not traditionally beenviewed as cash flows that could accrue to an investor (e.g., late fees,prepayment penalty fees, and so on). The cash flow engine 10 is alsorecognizes the existence of negative cash flows (e.g., in situationswhere a borrower defaults on the loan).

[0049] These features provide greater flexibility in creating financialinstruments and allow more optimal financial instruments to be created.In particular, financial instruments may be created that are moreoptimally aligned with what the purchaser wishes to purchase.

[0050] The cash flow engine 10 also provides benefits even in situationswhere the financial instruments 14 are not sold to external investors.For example, a holder of loan assets may use the cash flow engine 10 andthe financial engineering tools 18 to examine loan assets at a highlevel of specificity and granularity. The cash flow engine 10 providesthe ability to more precisely track risks, monitor performance, andperform other detailed analysis in connection with various aspects ofthe plurality of loans 12. This allows the investor to obtain a betterunderstanding of how the loan assets performed which would in turn wouldallow the investor to make better decisions about which assets to buy inthe future.

[0051] Additionally, the high level of data granularity allows moreaccounting information to be associated with each of the cash flows 15.This accounting information aids in compliance with accounting rules andregulations. The information further aids the user in tracking cashflows for internal accounting to optimize analysis of processes and cashflows.

[0052] Referring now to FIG. 5, an example of a cash flowdecomposition/repackaging operation that may be performed by the cashflow engine 10 is illustrated. Although the cash flow repackagingoperation is shown in connection with one of the loans 12 shown in FIG.1, it will be appreciated that similar operations are also performedwith respect to other ones of the loans 12 shown in FIG. 1.

[0053]FIG. 5 is divided into three rows. The first row, labeled“financial asset,” illustrates the financial asset (e.g., loan, packet,etc.) that is the source of the cash flows under consideration. Thesecond row, labeled “cash flow allocation summary,” illustrates cashflows that are available from the financial asset contained in the firstrow. Preferably, the cash flow engine 10 stores the information embodiedin the second row in the form of a cash flow allocation summary (“CFAS”)map. The CFAS map represents the manner in which loans are decomposedinto cash flows. The third row, labeled “packet cash flow allocation,”illustrates how the cash flows identified in the second row are used bypackets. As described in greater detail below in connection with FIGS.8-11, a “packet” is an aggregation or packaging of cash flows that istreated as an entity separate and distinct from the incoming cash flowsthat support it and from the cash flows that result from it. A packet isan example of a financial asset used for internal mapping and datatracking. As in the case of the CFAS map, preferably, the cash flowengine 10 stores the information embodied in the third row in the formof a packet cash flow allocation (“PCFA”) map which shows the cash flowsthat flow into packets.

[0054] In the example of FIG. 5, the loan 12 has a scheduled principalcash flow 62, an unscheduled principal cash flow 64, an LPT (or lenderpass through portion of the interest rate) cash flow 66, and a guaranteefee (“G-fee”) cash flow 68. The scheduled principal cash flow 62, theunscheduled principal cash flow 64, and the G-fee cash flow 68 arerepresented as being unallocated. The LPT cash flow 66, shown to be 6.5%adjustable rate interest, is represented as being 100% allocated betweena residual cash flow 70 and an IPT (or investor pass through portion ofthe interest rate) cash flow 72. The portion of the cash flow 66 whichis allocated to the IPT cash flow 72 is 300 bps fixed rate interest; theremainder is allocated to the residual cash flow 70. The IPT cash flow72 is 100% allocated to a packet 74. The packet 74 may then be used toback a financial instrument, or may be further decomposed in generallythe same manner that the cash flow 66 is decomposed. In other words, thedecomposition/repackaging may be performed both regard to the loan 12and other financial assets 14 to create multiple layers of cash flowdecomposition/repackaging. It is thus seen that complete flexibility isachieved in the manner in which cash flows may be decomposed andrepackaged to form financial instruments or other financial assets.

[0055] Referring now to FIG. 6, another example of a cash flowdecomposition/repackaging operation that may be performed by the cashflow engine 10 is illustrated. In the example of FIG. 6, the loan 12 hasa scheduled principal cash flow 82, an unscheduled principal cash flow84, an LPT cash flow 86, and a gross servicing fee cash flow 88. Thecash flows 82-86 are unallocated. The gross servicing fee cash flow 88is, shown to be 0.35% fixed rate, is represented as being 100% allocatedbetween a fixed ($50) servicing fee cash flow 90 and a residual cashflow 92. The fixed servicing fee cash flow 92 is 100% allocated to apacket 94. The packet 94 is a financial asset in the form of a fixed($50/month) servicing fee.

[0056] Thus, the arrangement of FIG. 6 may be used to address theabove-mentioned problem regarding compensation structures for servicers.Specifically, in conventional mortgage products, the loan assetcomprises a right to receive loan payments (including a principalpayment portion and an interest payment portion) from a borrower inconnection with the loan. The servicing asset comprises a right toreceive a servicing fee portion of the interest payment portion inexchange for performing servicing of the loan. However, as the unpaidprincipal balance of the loan decreases, the servicing fee portion ofeach loan payment also decreases, even though the costs of servicingloans typically increases on average further into the term of the loan.

[0057] Pursuant to the arrangement of FIG. 6, a secondary marketparticipant (e.g., an investor in loans) may acquire a home mortgageloan 12 having a loan asset and a servicing asset. The secondary marketparticipant then repackages the cash flows associated with the loans tocreate a modified servicing fee (packet 94) which provides a differentcompensation structure for the servicer than the servicing fee portionof the loan payment. The secondary market participant then subcontractsresponsibility for performing servicing of the loan to a servicer andcompensates the servicer with the modified servicing fee. Alternatively,rather than subcontracting servicing, the secondary market participantcould also resell the servicing asset to the servicer in a modified formin which the servicing asset permits the servicer to retain the modifiedservicing fee. Either way, the servicer performs servicing of the loanduring the term of the loan and receives the modified servicing fee ascompensation. As illustrated, the compensation provided to the servicerdoes not decrease through time during the term of the loan, but ratheris fixed (e.g., a $50 monthly payment). Alternatively, the modifiedservicing fee may be constructed so as to increase during the term ofthe loan. In practice, given that it is the servicer that receives loanpayments from the borrower, compensating the servicer may simplycomprise permitting the servicer to retain its compensation frompayments received by the servicer from a borrower before the paymentsare aggregated and forwarded to the secondary market participant. Thus,the arrangement of FIG. 6 produces a payment structure that is moreclosely aligned with the servicers' cost structure, addressing theservicer cost structure problem previously described.

[0058] It may also be noted that, over time, when the gross servicingfee cash flow 88 portion of the loan payment becomes less than $50 dueto increased equity, the residual cash flow 92 will become a negativecash flow. The negative cash flow operates to reduce other positive cashflows (not shown) in an amount necessary to provide the servicer with afixed $50/month servicing fee even though interest payments on the loanare decreasing. Notably, therefore, the system 10 is capable of trackingnegative cash flows.

[0059] Preferably, in this arrangement, additional accountinginformation is tracked to properly account for the underlying assets.For example, the value of the gross servicing fee cash flow 88 portionof the loan payment may need to be related to the value of the loan 12from which it originates to properly satisfy accounting rules.Accordingly, this information may be analyzed and tracked by theaccounting/reporting tools 17 to facilitate accounting.

[0060] Referring now to FIG. 7, another example of a cash flowrepackaging operation that may be performed by the cash flow engine 10is illustrated. In the example of FIG. 7, the loan 12 has a scheduledprincipal cash flow 102, an unscheduled principal cash flow 104, a LPTcash flow 106, and a G-fee cash flow 108. The cash flows 102 and 104 are100% allocated to a packet 114. The cash flow 106 is unallocated. Thecash flow 108 is 100% allocated to a residual cash flow 110 and a IPTcash flow 112, which is 100% allocated to the packet 114. The packet 114may receive similar cash flows from other ones of the loans 12. Thepacket 114 is decomposed to produce a scheduled principal cash flow 122,an unscheduled principal cash flow 124 and a IPT cash flow 126, each ofwhich is shown as being unallocated.

[0061] FIGS. 5-7 represent both the manner in which decomposition andrepackaging occur during loan/asset set up and the manner in whichdecomposition and repackaging occur during loan/asset data processingduring the life of the loans 12. In connection with loan/asset dataprocessing during the life of the loans 12, it may be noted that FIGS.5-7 present a static view of data processing and particularly the way inwhich cash flows flow from the loans 12 to the assets 14. Of course,there is also a dynamic (time-based) aspect loan/asset data processingdue to the fact that borrower payments may be received on differentdays, servicers have different deadlines for reporting data, and so on.Therefore, cash flows may flow into certain ones of the financial assets(packets) 14 on certain days and flow into other ones of the packetsassets (packets) 14 on different days. Preferably, and as described ingreater detail below in connection with FIGS. 8-11, the packets arecreated so as to include process instructions that take such time-basedelements into account.

[0062] Referring now to FIG. 8, in order to perform cash flowdecomposition and repackaging during loan/asset set up, a graphical userinterface (GUI) may be used that displays decomposition and repackaginginformation to a user and receives operator inputs used increating/modifying relationships between loans, cash flows, and assets.Such a GUI may comprise an operator input interface (e.g., programlogic) that receive operator inputs using a suitable input devices(e.g., keyboard, mouse, and so on) and a display interface (e.g.,program logic) that drives an output device (e.g., computer display) todisplay indicia regarding the loans 12, the assets 14 and the cash flows15 in tabular, iconic, block diagram, or other formats.

[0063] For example, in one embodiment, the graphical user interface isorganized in a manner generally similar to FIGS. 5-7. Thus, FIG. 8 isthe same as FIG. 7, except that reference numbers have been changed suchthat a description of an exemplary GUI 150 may be given. The GUI 150comprises a display interface which displays indicia (icon 152)representative a home mortgage loan 12, indicia (e.g., icons 154)representative of the cash flows 15, indicia (e.g., icons 156)representative of the plurality of financial assets 14, and indicia(e.g., lines 158 extending between the icons 152-156) representative ofa manner in which cash flows that flow into the financial assets 14 aretraceable back to one or more of the plurality of home mortgage loans12. Other information may also be displayed. For example, in theillustrated embodiment, information regarding an extent to whichindividual ones of the cash flows 15 have been allocated (e.g., “100%used”) to the financial assets 14. Additionally, the icons 152-156 mayalso be displayed in a manner (e.g., different colors, differentsymbology, and so on) that provides additional information regarding thetype of loan, cash flow, or asset that the icon is intended torepresent.

[0064] As numerous decomposition/repackaging operations are performedfor multiple loans and multiple financial assets, different icons aredisplayed that represent the different loans, the different cash flows,and the different assets. Such information may be either displayedsimultaneously or at different times on different display screens,depending on how much information it is considered desirable to provideoperator with at once. The operator input interface then receivesoperator inputs which define the manner in which each of the loan 12 areto be decomposed into the cash flows 15 and the manner in which the cashflows 15 are to be repackaged to form the financial assets 14. Forexample, the operator interface may receive inputs identifying specificloans for decomposition, cash flows that are to be decomposed, theallocation of the cash flows from one or more loans to one or morespecific assets, the allocation of cash flows between assets, and so on.The operator inputs may also be used in connection with sifting logicand sorting logic. As will be described in below, sifting logic isprovides a mechanism by which users can examine the entire collateraluniverse and pair down to smaller groupings of collateral or assetswithin the universe, and sorting logic provides a mechanism by whichuser may group the subset of collateral identified in the siftingprocess and organize it by a single or multiple attributes to furtherrefine the pool of candidate collateral to be placed into a potentialpacket.

[0065] II. Packet System

[0066] Referring now to FIGS. 9-13, exemplary embodiments of a packetsystem and related methods will now be described. These exemplaryembodiments describe the creation, maintenance, and dissolution of cashflow aggregation structures, or “packets.” Such a structure includes amapping of asset cash flows to a higher order and the effective datesfor those mappings. The cash flow aggregation structures and methods canbe implemented in a wide variety of different ways. Various embodimentsmay include, for example, packets with other types of attributes orpackets formed in other ways than those described.

[0067] In the preferred system of FIGS. 9-13, a packet is an aggregationor packaging of cash flows that is treated as an entity separate anddistinct from the incoming cash flows that support it and from the cashflows that result from it. The packet can be used for both thecollection and distribution of data and monies. Although, exemplaryembodiments described herein use the term “packet” to refer to thedistribution or re-distribution of cash flows after their collection,the interpretation of “packet” should not be limited by the examplesprovided.

[0068] Packets provide data integrity of underlying reported assets andcreate an information chain that maps to a higher-order form ofrecognized asset. The source data for packets may be loan-level orpacket-level information, and the packets themselves may representactual securities or just a unit of reporting and remittance.

[0069] Besides capturing the relationship between sources of cash flowand the packaging thereof, a packet also tracks certain descriptive dataabout itself. For example, a packet has information about its ownattributes, the disposition of its cash flows, and any reported output,including disclosure data. Additionally, a packet describes its processbehavior, which may be derived from external business rules. Thesebusiness rules may be standard (as would be the case for mortgage-backedsecurity packets), or they may apply to a specific packet (as mighthappen in a structured transaction). Sources of incoming cash flows to apacket may be loan remittances, percentages of loan remittances, pooldistributions, percentages of pool distributions, securities, or othertypes of synthetic or real assets.

[0070] Packets provide a data map that permits inspection of loan assetsand securities assets when data exists at both levels. The ability tocreate and manipulate packets enables the creation of new types offinancial products. Packets also improve the processing of transactionsand support of new types of transactions within the secondary market.

[0071] By way of example, FIG. 9 illustrates a packet 210 including apackaging of cash flows. The packet 210 can include packet typeinformation 214, packet state information 218, asset information 222,asset type information 226, information 230 regarding allocation of cashflows from asset, and effective date information 234.

[0072] The packet type information 214 indicates the type of financialasset associated with the packet, for example, the packet 210 may beassociated with an OOP (out of portfolio) pool, MBS pool, lender-formedMBS pools, Mega, Choice pools, Majors, Pseudo pool, Reference pool,excess servicing strip, excess/deficit yield, stripped loan, or othertype of structure. The packet type information 214 may also describe,for example, who is expected to initiate the creation of this packettype, how the packet to be created, attributes required for creation ofthe packet, minimum set of disclosure data, packet statistics, estimatedfrequency of creation, rules for dissolving the packet if the packet isin production, necessary accounting events, and system(s) responsiblefor performing roll-up of the packet. The packet type helps determinewhich business rules to apply. The packet type further enables theaccounting/reporting tools 18 to make a determination as to whichaccounting rules to apply.

[0073] The packet state information 218 indicates whether, for example,the packet is at a pre-packet, pending packet, or production packetstage. The asset information 222 indicates a set of assets, such as,loan #1 interest, loan #1 principal, loan #2 principal, etc. The assettype information 226 indicates the underlying asset type, e.g., loan,MBS, etc. The information 230 regarding allocation of cash flows fromasset indicates, for example, the money amount, percentage allocation,or basis point amount of the cash flow. The effective date information234 indicates the effective dates for the participation of each cashflow in the packet.

[0074] Although several specific attributes are described as composingpacket 210, additional, fewer or different attributes may be used forpacket creation. Examples of additional attributes can include:applicable business rules, alternate exception flow, additionalreporting/disclosure requirements, additional accounting components,ticker symbol, and conduit tagging specification for underlying cashflows and/or assets.

[0075] By way of another example, FIG. 10 illustrates a packet 236including a header 240, a map 242, process instructions 244, and outputrequirements 246. The header 240 includes packet header data, such as,creation, purpose, and transaction information. More specifically,packet header data in the header 240 can include packet ID (unique),packet type, packet state, date of when packet was created, time of whenpacket was created, user/System ID of creator of packet, and anindicator of whether the packet represents a security or is merely areporting entity.

[0076] The map 242 includes information on cash flow and disclosureissues such as, an identifier, a cash flow quantity, a disclosure basisquantity, and a date in. Two exemplary ways in which the map 242 for apacket can be formed are GUI (graphical user interface)-based mappingand GUI-less mapping. The GUI-based mapping occurs when a user accessesa sift/sort screen to identify collateral. Once the collateral assetshave been identified, the next step is to bring up a packet detailmapping GUI in which the user can select the specific sources of cashflow and quantities thereof to be added to the designated packet. Thesefunctions may be included as functions that may be performed by the GUI150, described above.

[0077] The GUI-less mapping occurs when all the required elements of apacket are present. Accordingly, no GUI is needed to build the detailedpacket map. In such scenario, a template by transaction type is used toset the default values in the resulting packet. This concept isdescribed below.

[0078] A “transaction type” describes what type of business event isoccurring, most often, but not always, indicating what type of securityis being created. Transaction types can include MBS, ABS, REMIC, WholeLoan REMIC, Excess Servicing Strip, Grantor Trust, StructuredTransaction (undifferentiated), Credit-Linked Note, SMBS (stripped MBS),Whole Loan Sale, or Loan Strip.

[0079] The GUI for packet detail mapping contains a list of possiblesources of cash flow, and allows users to designate the quantity of eachto be packetized. The possible sources of cash flow are derived from thenature of the underlying asset(s). If the collateral asset is anotherpacket, only those cash flows that are included in the collateral packet(and therefore available for re-packeting) are displayed. If the assetis a mortgage loan, then loan-level cash flows are displayed. Ifpossible, the screen derives which cash flows are available at the loanlevel based on what is (or will be) reported by the servicer. It is alsopossible that certain types of cash flows may be deemed unavailable forinclusion in the packet based on the accounting or business rules thatare applicable to the cash flows.

[0080] In addition to selecting the cash flows to be placed in thepacket, users can select the quantity to be packetized. Packet detailmapping templates are performed for different types of packets, based ontransaction type. These templates store defaults for the cash flowelements and their quantities values. For example: if the packet type is“MBS Pool,” the template automatically defaults the quantities ofSCHEDULED UPB (unpaid balance) to 100%, SCHEDULED PRINCIPAL to 100%,UNSCHEDULED PRINCIPAL to 100%, and SCHEDULED INTEREST to the logicalvalue given the target pass-thru rate of the MBS. If the transactiontype is “Whole Loan REMIC” or “Excess Servicing Fee Strip,” differenttemplates with different default values are called.

[0081] In addition to mapping cash flow elements, the transaction typedefault template has a list of default disclosure reports. If anindividual request to create a packet does not specify disclosure reporttypes, this service assigns the disclosure reports for a given packetbased on the defaults for the specified transaction type. The disclosurereports preferably include information to facilitate accounting for thepacket to be created based on the accounting information received forthe cash flows incorporated in the packet. For example, where the cashflow is considered a derivative cash flow, the accounting value of thepacket may be determined based upon the value of the underlying assetfrom which the cash flow originates.

[0082] The GUI for mapping the data gives users the ability to map cashflows and quantities identically for all assets, for selected groups ofassets, or one-by-one for individual assets. This GUI also allows usersto specify quantities in a variety of formats: as specified values, aspercentages, in basis points (bps) (for interest-related cash flowsources only), or as a formula. An example of the latter would be in anexcess servicing fee strip, where the quantity of servicing fee to bepacketed could be expressed as “all SF>25 bps at the loan level.”Results of this GUI will be used to form the PACKET DATA USE MAP thatcompletes the packet definition in the illustrated embodiment.

[0083] The process instructions 244 include information on cash flowprocessing, such as, roll-up frequency, payment and payoff activitycutoff, roll-up business rules, and applicable accounting rules. Theoutput requirements 246 include information on cash flow output, suchas, output reporting, accounting reporting, release date, and public orprivate status. Additional information can be included in the packet236.

[0084]FIG. 11 illustrates packets 250 and 252 having exemplary packetcontent. The packet 250 is a MBS packet including a header 254, anoptional header 256, a data use map 258, periodic process data 260, andoutput 262. The packet 252 is a Mega packet including a header 266, anoptional header 268, a data use map 270, periodic process data 272, andoutput 274.

[0085]FIG. 12 illustrates a flow diagram 280 of an exemplary method ofcreating packets. Whether creating a packet with or without a GUI, theprocess of creating a packet can include a step 282 in which assets areselected by a sift and sort process. In an exemplary sift process,assets are examined for selected attributes and the assets are groupedbased on the selected attributes. For example, loans can be searched for30 year fixed rate mortgages in New York. In an exemplary sort process,the results from the sort are prioritized. In the mortgage examplegiven, the results could be prioritized based on length of termremaining.

[0086] After operation 282, a step 284 is performed in which loan/asseteligibility business rules are applied. Such rules provide a set offilters that override user-defined characteristics used in the sift andsort process. For example, a business rule may be that no more than 10%of loans can be relocation loans. Such a rule would place a limit onloan assets collected in the packet creation process.

[0087] In a step 286, detailed cash flows are mapped and in a step 288packet creation business rules are applied. These results can bepersisted in a database and the accounting and disclosure operationsapplied. The user can append or relax certain business rules specific toa deal, based on Deal ID.

[0088] Non-portfolio packet cash flows and assets can be analyzed withstandard edits for completeness. Selected cash flows and assets arechecked to ensure that they are not being used by another packet. Cashflows and assets may be reviewed under the edits and eligibility rulesfor packetization (specific rules vary according to packet type and maybe specific to a single packet). Selected cash flows and assets may beselected that are in “production.” Cash flows and assets may pass anyadditional business rules not covered by the eligibility rules. The cashflows that pass the rules are eligible to “belong” to the packet. Statusof underlying cash flows and assets may then be appropriately updatedbased on packet state. Allocations of available cash flows may also beappropriately updated to reflect portions of cash flows no longeravailable. Accounting treatments of underlying cash flows and assets mayalso be updated, if necessary. Proper book and tax accounting forproduction packets may also occur. Appropriate disclosure reports mayalso be generated. Statistics for the packet may also be calculated(roll-up).

[0089] In certain situations, packets may need to be modified such asanother user requiring a cash flow that is already in a pre-packet.Types of modifications to packets include removal of underlying cashflows, substitution of cash flows, and addition of cash flows. When apacket is modified, it goes through a subset of the steps required forpacket creation. Production packets can require additional reporting,logging, and accounting steps.

[0090] Different types of updates can be applied to packets at differentstates. For example, modifications to selected assets made before thepacket detailed map is created are local updates. Modifications madeafter the packet detailed map is created but while the packet is stillin “pending” status are most likely to be triggered as a result oflender activity. Users may add, remove or substitute loans and/or cashflows in a pending packet. Modifications made to a production packet canbe triggered by an attribute change processor (which, in the illustratedembodiment, is part of the system described below in connection withFIG. 13). Events such as BuyUp/BuyDown, Dissolves, and LoanSubstitutions can trigger a packet modification event.

[0091] If a cash flow is added, removed or substituted (in essence,removed), the following actions happen on that cash flow. First, thestatus of underlying cash flows and assets is appropriately updatedbased on packet state. Conduit codes of underlying cash flows and assetsare updated, if necessary. The cash flow link to the packet is removed.

[0092] Following the cash flow updates, the following events occur onthe newly formed packet. First, added cash flows and assets passstandard edits for completeness. Next, the packet's cash flows andassets are checked to ensure that they are still eligible forpacketization (e.g., another packet has not used them). Cash flows andassets pass the edits and eligibility rules for packetization (specificrules vary according to packet type).

[0093] As previously noted, accounting/reporting tools 17 applyapplicable accounting rules to the packets to determine accountingreporting and actions. The origin and nature of the underlying cashflows are included in information associated with the packet tofacilitate application of the accounting rules.

[0094] Cash flows and assets can be reviewed to ascertain whether theypass any additional business rules not covered by the eligibility rules.Proper book and tax accounting for production packets occur andappropriate reports are generated. Finally, statistics for the packetare re-calculated in a process referred to as “roll-up”.

[0095] Packet dissolution arises from the same triggers as describedwith respect to packet modifications. In dissolving non-productionpackets, the underlying cash flows and assets have their status andconduit codes appropriately updated, and their links to the packet areremoved. In essence, those cash flows are now available for use byanother packet. The steps can include updating the status of underlyingcash flows and assets, updating the conduit codes of underlying cashflows and assets, removing the cash flow link to the packet, marking thepacket as having a state of Dissolved.

[0096] In an exemplary embodiment, the process of securitizing a packetoccurs between the pending and production states and includes thesefunctions: set-up and assigning of pool number and/or CUSIP,determination of issue date, settlement and issuance of the packet,accounting for production packets, and generating appropriate disclosuredocumentation and reports.

[0097] Roll-up takes the information contained in the packet andcalculates summary cash flows, investor payments, as well as statisticsabout the packet. An example list of attributes resulting from theroll-up function include the calculation of: UPB (unpaid principalbalance of the packet), WAC (weighted-average coupon or note rate ofunderlying mortgage loans), WAM (weighted-average maturity of underlyingmortgage loans), WALA (weighted-average loan age of underlying mortgageloans), WALT (weighted-average loan term at origination of underlyingmortgage loans), and GEODIST (geographical distribution of underlyingmortgage loans). Not all of these attributes may be appropriate and whatis calculated depends on the packet type. For packets that representsecurities, such calculations will facilitate investor disclosure on aperiodic basis.

[0098] Referring to FIG. 13, a packet creation system 290 isillustrated. In an exemplary embodiment, there are three main statesthat a packet can be in: a pre-packets state 292, a pending packetsstate 294, and a production packets state 296. Each of the savedversions is considered a pre-packet. Additionally, if a user sets up anAuto-Sift, the underlying cash flows that meet the sift criteria areplaced in a pre-packet.

[0099] When the user decides that a given pre-packet is to besecuritized, he/she can move the packet into the pending packet state244. If the pending packet meets all of the necessary criteria, it canthen be moved to the production packet state 296.

[0100] A pre-packet is a packet that has been created, but has not beenconfirmed as a pending packet or production packet. The cash flows oritems contained in the packet are tagged as having a status of Hold sothat other users are aware that the underlying items in the packet arebeing considered for production use.

[0101] Items contained in a pre-packet have a Hold status. If an item istagged as having a status of Hold, it is visible to other users whilethey model the packet. Additionally, the person and the date and time inwhich that item was placed on Hold are persisted and available throughthe user interface. However, the cash flow or item cannot have a Holdstatus to be included other packets.

[0102] Under most circumstances, only the user that placed the cashflow/item on hold is allowed to remove the Hold status. However, in caseof emergencies, a supervisor or designated super user can have“over-ride” capabilities to remove the Hold status. In this case, theuser that placed the cash flow/item on hold is notified by email or pageof this change.

[0103] The pending packet state is the state right before a packetbecomes a production packet. The purpose of the pending packet state isto lock the cash flows while necessary edits, checks, and approvals arebeing performed before the packet is ready to become a productionpacket. The underlying cash flows of a pending packet are labeled with astatus of Locked, and are therefore not available in the Sift/Sort toolfor inclusion in the creation of other packets.

[0104] Items contained in pending packets have a Locked status. If anitem is tagged as having a status of Locked, it is not be available forSift/Sort and cannot be included in other packets. Items placed in aLocked status are limited in what can be done to them in that they arenot available for Sift/Sort or Packeting. If an item belongs to apending packet, it is possible to change the status from Locked to Holdor removing the Locked status altogether easily.

[0105] A production packet can be considered the most restrictive of thethree packet types. Like the name states, a production packet is apacket that has been moved to production and has been securitized. Theunderlying cash flows of a production packet are labeled with a statusof Locked, and are therefore not available for Sift/Sort.

[0106] Editing and dissolving production packets can be detailed,complex, and secure transactions. In order to edit or dissolve aproduction packet, the user has special permissions and the transactionshave multiple control points. The creation, editing and dissolution ofproduction packets cause accounting events to occur.

[0107] Items contained in the production packets state 296 have aProduction status. If an item is tagged as having a status ofProduction, it is not available for Sift/Sort and cannot be included inother packets. Items placed in a Production status are limited in whatcan be done to them in that they are not available for sift/sort orpacketing. Guidelines with regards to changing the status fromProduction following a dissolution or change to a production packet aregoverned by the rules of the packet type.

[0108] If a packet is dissolved, its state is marked as Dissolved.Information as to the user, date and time that the packet was dissolvedshall be stored. The effective dates are also stored, as this determineswhen the asset cash flows become available again.

[0109] At time of packet creation, much packet data defaults to atransaction type that the packet is being created for. However, a packetstructure that is able to identify and handle exceptions to thesedefaults is needed to accommodate custom transactions Packets have aminimum required set of attributes, along with a variety of additionalattributes. Table II illustrates the kinds of data in an exemplarypacket: TABLE II Exemplary Packet Data PACKET ITEM EXAMPLE DATA WHEREFROM? PACKET HEADER DATA Packet ID (unique) 123456789 generated Packettype MBS pool, mega pool, entered, trans mgr pseudopool, reference poolPacket creation Apr. 15, 2002 generated date Packet status production,pending generated OPTIONAL PACKET HEADER DATA CUSIP number 31359 enteredor trans mgr (Acq) trade date Apr. 15, 2002 entered (SPAM only)settlement date May 13, 2002 entered (SPAM only) expected sale price99.524 entered (SPAM only) prepayment model PSA, CPR selected (SPAMonly) prepayment speed 240 (PSA), 15 CPR entered (SPAM only) initialsecurity 7.00% selected (SPAM), PTR entered (Acq) trade number 605288Bentered (SPAM only) business rules (as numbered in Acq packet creationapplied at creation business rules library) data as of date at Mar. 31,2002 packet creation creation book cost basis 99.12345 (price), packetcreation $123,456,789.01 (SPAM) (dollar value) tax cost basis 99.12345(price), packet creation $123,456,789.01 (SPAM) (dollar value) PACKETDATA USE MAP asset ID loan number 123456789012, packet creation packetnumber 9876543210 asset type loan, packet packet creation data element 1scheduled principal, net packet creation PTR interest, gross GF, excessSF, UPB cashflow quantity 1 57.12345678%, 17.34 bps, packet creation$12.50 disclosure basis 100.00% packet creation quantity 1 data element1 substitution only effective date in data element 1 substitution onlyeffective date out PERIODIC PROCESS DATA rollup frequency monthly,quarterly, annual packet creation payment activity calendar monthend,packet creation cut-off date calendar quarterend, 15th, last businessday payoff activing calendar monthend, packet creation cut-off datecalendar quarterend, 15th, last business day reporting cut-off sinceprevious, packet creation date preceeding calendar month, preceedingyear rollup business (as numbered in SIR rules packet creation rules toapply library) PACKET OUTPUT output report 1 Bond Buyer, Quartiles,packet creation, ARMAT, pseudopool, entered GEODIST, FLIP output releasedate 4th business day, packet creation calendar quarterend + 3 businessdays public/private flag public entered

[0110] Table II reflects that a packet may store several pieces ofinformation pertaining to its creation, such as what business rules wereapplied. Note also that the packet references predefined reports (whichare defined elsewhere), and supplies the basis for computation in thosereports (e.g. use 100% of UPB when computing WAC and WAM in the “BondBuyer” report).

[0111] Some packets are associated with loan-level cash flows. A packet(or in some cases a chain of packets) describes how the underlying loanassets are associated with a “finished” deal-related product. However,to be fully useful to downstream processes, some data decomposition (or“internal re-mapping”) may have to be applied first. Some of the datadecomposition steps can precede packet creation and rollup, convertingloan level data reported by lenders into a form useful to downstreamprocesses. Data decomposition is not just related to packets; it is alsonecessary for accounting, analysis, and reporting. In cases where theinternal use of lender reported inbound data differs from its use withina packet, data re-mapping is required for roll-up. In some cases, thisre-mapping may occur on a transaction-specific basis, and therefore be aby-product of the same event that also resulted in the creation of apacket. It also is possible that re-mapping is required several times asan asset is associated with additional transactions over time, such asMBS to Mega to REMIC.

[0112] Referring again to FIG. 13, when the decision is made tosecuritize a packet, the packet moves to the pending packet state 294and the underlying assets get a status of Locked. A Pending Packet canbe elevated to a Production Packet once all of the necessary steps havebeen taken. Assets remain Locked following a state change to Production.Alternatively, the packet could be dissolved, in which case the assetsare freed up for another packet to use. Packet dissolution can alsohappen from the pre-packet state 292. If an OOP Production Packet isdissolved, for example, its assets may become available for use byanother packet. When lender-formed packets are dissolved, the assets arenormally returned to the lender.

[0113] If a user decides that he/she wishes to create a Packet, the useris allowed to create a pre-packet. The pre-packet places the underlyingcash flows or items on Hold in addition to storing all of theinformation that is stored by a version defined above. Preferably, thereis only be one pre-packet created for a given session. If a user decidesthat he/she wants to packetize a version that is being worked on, buthe/she already has a pre-packet, he/she is asked to dissolve theprevious pre-packet. Previously created pre-packets are dissolved beforea version is available for packetization. Additionally, versions areallowed to view cash flows that have a Hold status if the Hold statuswas placed by a packet created in the same session.

[0114] III. Data Processing System

[0115] Referring now to FIG. 14, a computer system 310 usable toimplement the cash flow engine and packeting systems described above isshown. The computer system 310 is described in greater detail in “Systemand Method for Processing Data Pertaining to Financial Assets” Atty.Dkt. No. 037607-0158, filed simultaneously herewith, hereby incorporatedby reference.

[0116] As shown in FIG. 14, the system 310 comprises a data processingsystem 312, user systems 314, bulk data systems 316, and other datainterfaces 318. The data processing system 312 further comprises userservices logic 322, a transaction processor 324, underwriting logic 326,acquisition logic 328, servicer and investor reporting logic 330,securitization logic 332, common services logic 334, a data storagesystem 338, and other data interfaces 336. Although the term “logic” isused in connection with some blocks and the term “processor” is used inconnection with other blocks, these two terms are used interchangeably.The term “processor” is used in the generic sense and is not meant toimply a separate discrete unit of processing hardware.

[0117] The data processing system 312 is configured for processing datapertaining to financial assets, such as loans and securities. In oneembodiment, the data processing system 312 is configured to be used by aparticipant in the secondary mortgage market. Herein, for convenience,the participant is referred to as a “purchaser,” although it should beunderstood that the purchaser may participate in the secondary market inother, different, or additional ways (e.g., as a loan guarantor, as aloan securitizer, and so on).

[0118] The data processing system 312 is preferably usable to supportvarious types of transactions which may be executed by such a purchaserin connection with one or more loans. For example, the purchaser maypurchase loans from lenders or other loan originators as part of a cashexecution. The purchased loans may, for example, be held as investmentsin the purchaser's investment portfolio. Alternatively, the purchasermay create mortgage backed securities (MBS) as part of an MBS execution,or create other financial instruments or assets that are backed by cashflows associated with individual loans, including both loans that havebeen purchased by the purchaser and other loans that have not beenpurchased by the purchaser. For example, in the case of MBS, thepurchaser may acquire a pool of loans, securitize the pool of loans tocreate MBS that is then sold to investors, and hold the pool of loans intrust for the benefit of the investors. The purchaser may also receive afee for guaranteeing to holders of MBS or other financial instrumentsthe repayment of the loans by borrowers. The purchaser may also useloans to create other types of financial assets or instruments, forexample, by purchasing loans and selling the financial instruments toinvestors, or by performing such services for other owners of loanassets.

[0119] The acquisition logic 328 is preferably usable to perform suchoperations as receiving information such as loan term, interest rate,principal owed and other parameters regarding loans when loans are firstpurchased or otherwise acquired and entered into the data processingsystem 312. In the case of cash executions, the acquisition logic 328 isalso used to perform such operations as receiving commitments for thepurchased loans.

[0120] The servicer and investor reporting logic 330 is used to performloan accounting and generate accounting output in connection with thepurchased loans. Herein, the terms “reporting logic” and “servicer andinvestor reporting logic” are used interchangeably and both refer tologic that is configured to perform loan accounting and generateaccounting output (e.g., for purposes of investor reporting, forpurposes of managing a loan portfolio, and so on) in connection with aplurality of loans. The servicer and investor reporting logic 330preferably performs such functions as receiving loan payment data on anongoing basis from third party servicers. In this regard, it may benoted that the servicer and investor reporting logic 330 in theillustrated embodiment is not used for servicing loans directly butrather merely interfaces with loan servicing logic provided by a thirdparty servicer. Of course, the servicer and investor reporting logic 330could also be configured to include additional logic for servicingloans, either as part of the servicer and investor reporting logic 330or as part of another functional block. The accounting output generatedby the servicer and investor reporting logic 330 may include such thingsas accounting, tax, performance/valuation, and/or other relevantfinancial information for the loans in the portfolio.

[0121] The servicer and investor reporting logic 330 includes loanprocess and compare (LPC) logic 340, which monitors and verifies theactivities of third party mortgage servicers on an ongoing basis. Thelogic 330 includes logic that implements the accounting/reporting tools17 of FIG. 1. The LPC logic 340 performs processing related todecomposing borrower payments into sub-loan level cash flows inaccordance with the CFAS maps discussed above in connection with FIGS.3-5. Thus, the LPC logic 340 performs such operations as receiving andvalidating reporting information pertaining to loan activity, loandelinquency information and unpaid balance comparison reported by theservicer, updating the records of the data processing system 312regarding the status of all reported loans, and determining theremittance and disbursement amounts that are expected for the loans. TheLPC logic 340 also computes and monitors cash flows entering into thepackets.

[0122] The servicer and investor reporting logic 330 also includessecurities aggregation and management (SAM) logic 342 which receives theloan level cash flow information produced by the LPC logic 340 andaggregates this cash flow information to produce security levelinformation and generate disclosure reports. The SAM logic 342 performsprocessing related to the PCFA maps discussed above in connection withFIGS. 5-7. The SAM logic 130 is capable of processing and managing anygrouping of loans, cash flows from loans, and other financialinstruments. Using a packet activity processor, the SAM logic 342determines the loans in a given pool, repackages cash flows based on thepool and loan level attributes for all the loans and then updates thesystem database. The packet activity processor has the flexibility torepackage loan level cash flows at the most granular level to securitylevel enabling the SAM logic 342 to also manage specific cash flowstrips (e.g., access yield strips, interest only strips). At the end ofappropriate processing periods, the SAM logic 342 finalizes the relevantsecurity information. The SAM logic 342 then uses a packet disclosureprocessor to make final remittance level principal and interest,guaranty fee, and other draft amounts and security accounting dataavailable to other components the data processing system 312. The SAMlogic 342 also includes packet modification request processing logicwhich is used to modify packets.

[0123] The securitization logic 332 is used to generate financial assetsand includes logic that implements the decomposition/repackaging tool 16described above in connection with FIG. 1. Herein, the terms “financialasset generation logic” and “securitization logic” are usedinterchangeably and refer to any logic that is used to generate/createfinancial assets. The securitization logic 332 may be used to generatefinancial assets such as MBS, debt instruments, or any of the othertypes of financial instruments described herein. The securitizationlogic 332 may be used to generate financial assets that are trackedinternally in situations where the owner/operator of the data processingsystem 312 purchases a pool of loans and holds the loans as aninvestment in its own portfolio.

[0124] The common services logic 334 includes a rules engine. The rulesengine comprises a series of business rules used in decomposing andrepackaging cash flows and performing other loan processing.

[0125] Preferably, operators access the data processing system 312through the Internet by using a personal/laptop computer or othersuitable Internet-enabled device. For example, the data processingsystem 312 may be accessible to users by visiting an internal web siteof the entity that performs the cash flow decomposition/repackaging(that is, the web site of the entity that owns/operates the dataprocessing system 312, and that is assumed to be in the business ofpurchasing, guaranteeing, and/or securitizing loans) and clicking onappropriate links located at the web site.

[0126] It will be appreciated that the data processing system 312 mayperform fewer or additional functions as compared to those describedherein. For example, an entity that performs only some of theabove-mentioned processes may use a computer system that contains only asubset of the functions described herein.

[0127] The preferred data processing system 312 exhibits a high level ofdata, service and time granularity. With respect to data granularity,the system 312 is capable of decomposing loans into a series of highlygranular cash flows and tracking all of the cash flows from the pointthe cash flows enter the data processing system 312 (e.g., as part of aloan payment or other cash flow source) to the point the cash flows exitthe data processing system 312 (e.g., as part of a payment on afinancial instrument), as previously described. The decomposition andmapping of cash flows dramatically increases the number of differenttypes of financial instruments that may be created, because it makes itpossible to create financial instruments based on these other cashflows. In turn, this makes it possible to create financial instrumentsthat are more optimally configured to meet the needs of the owner of thefinancial instrument.

[0128] With respect to service granularity, the data processing system312 represents loans as a series of attributes and uses a business rulesengine to process loan information. This dramatically simplifies theprocess of expanding the capabilities of the data processing system 312to process data associated with new types of loans. The capability toprocess a new type of loan may be added by adding an additionalattribute to a list of available attributes corresponding to the newproduct feature (or modifying existing attributes), by using theattribute to indicate the presence or absence (and/or othercharacteristics about the new feature) in a particular loan, and bymodifying the rules engine may then be modified to incorporateadditional rules regarding the new loan feature. It is not necessary tobuild a completely new data processing system for the new type of loan.This makes it easier to offer new types of loans which are moreoptimally configured to meet the needs of individual borrowers. Anexemplary set of attributes is described at the end of this section.

[0129] With respect to time granularity, the data processing system 312is capable of processing data using a much smaller time slice or updateperiod than has been possible in the past. In the past, systems havetypically been constructed around the assumption that servicers providemonthly reports which summarize loan activity that occurred during theprevious month. The time slice for reporting has been one month andsub-monthly temporal data has been lost. In the data processing system312, when information regarding new loans is received by the acquisitionlogic 328 and/or when information regarding loan payments is received bythe servicer and investor reporting logic 330, this informationpreferably includes information regarding the date the loan wasacquired, the date or dates within each month or other period otherperiod on which a payment or other transaction is expected, and/or thedate the payment was received. The time slice in the data processingsystem 312 is therefore one day (or less, if a smaller time slice suchas AM/PM, hour, minutes, seconds, and so on, is used). The temporalinformation is stored and maintained in databases which aresynchronized/commonly accessible by the acquisition logic 328, theservicer and investor reporting logic 330, and the securitization logic332. As a result, the acquisition logic 328, the servicer and investorreporting logic 330, and the securitization logic 332 each have accessto this highly granular temporal information regarding loan acquisitionsand payments. The increased time granularity supports theabove-mentioned capabilities to offer a wider array of loans toborrowers and a wider array of financial instruments to investor. Forexample, the increased time granularity facilitates offering loanproducts in which the borrower is expected to make bi-weekly payments,which may be attractive to borrowers that get paid bi-weekly instead oftwice-monthly or monthly. This also facilitates handling loan productsin which the date of a transaction is meaningful, such as daily simpleinterest loans. Further, because sub-loan cash flows can be processedusing a one day time slice (or less), it is possible to create financialinstruments based on cash flows that are processed on a per day basis.

[0130] Another benefit of the acquisition logic 328, the servicer andinvestor reporting logic 330, and the securitization logic 332 beingprovided on a common platform and access common/synchronized databasesis that each system has an up to date view of the data. As previouslyindicated, the data processing system 312 has the ability to acceptpayment and other transaction information from a servicer as suchtransactions occur (e.g., using daily, hourly, or near real-timeupdates) instead of or in addition to receiving end of the month summarytransaction information from the servicer. Once the data is received, itis accessible throughout the data processing system 312. For example, itis not necessary to limit the data updates for the securitization logicto a once-per-month basis at the end of a servicing cycle. Therefore, anup to date view of the data is available throughout the data processingsystem 312.

[0131] It should also be apparent that it is also possible to constructdata processing systems which do not incorporate the advantagesdescribed herein in connection with the data processing system 312, orwhich also incorporate additional advantages not described herein.Further, it may also be noted that the separation of functionality shownin FIG. 14 is necessarily to some extent conceptual, and it is alsopossible to provide the same functionality in other ways. Additionally,although numerous functions are described below, it may be noted that itmay be desirable to provide fewer, additional, or different functions ina given data processing system depending on the application and what isneeded.

[0132] Throughout the specification, numerous advantages of preferredembodiments have been identified. It will be understood of course thatit is possible to employ the teachings herein without necessarilyachieving the same advantages. Additionally, although many features havebeen described in the context of a particular data processing system, itwill be appreciated that such features could also be implemented in thecontext of other hardware configurations. Further, although variousfigures depict a series of steps which are performed sequentially, thesteps shown in such figures generally need not be performed in anyparticular order. For example, some of the steps may be performedessentially simultaneously. Additionally, some steps shown may beperformed repetitively with particular ones of the steps being performedmore frequently than others. Alternatively, it may be desirable in somesituations to perform steps in a different order than shown.

[0133] While the exemplary embodiments illustrated in the figures anddescribed above are presently preferred, it should be understood thatthese embodiments are offered by way of example only. Other embodimentsmay include, for example, structures with different data mapping ordifferent data. The invention is not limited to a particular embodiment,but extends to various modifications, combinations, and permutationsthat nevertheless fall within the scope and spirit of the appendedclaims.

What is claimed is:
 1. A packet that packages cash flows from financialinstruments, the packet comprising: packet description data havingcreation, purpose, and transaction information data describing thepacket; a data map including information on cash flows that flow intothe packet; and process instructions including information on cash flowprocessing for the cash flows that flow into the packet.
 2. The packetof claim 1, wherein the header data, data map, and process instructionsdecouple inbound cash flows from outbound cash flows, therebyaccommodating transactions with indirect segregation of cash flows. 3.The method of claim 2, wherein transactions with less direct segregationof cash flows include structured transactions.
 4. The method of claim 2,wherein transactions with less direct segregation of cash flows includetransactions having cash flows in a non-fixed format.
 5. The packet ofclaim 1, wherein header data includes packet type information indicatingthe type of cash flow associated with the packet.
 6. The packet of claim1, wherein the packet is created in accordance with business rules. 7.The packet of claim 1, further comprising an indication of a packetstate.
 8. The method of claim 7, wherein the packet state is capable ofbeing any of the following packet states: pre-packet, pending packet,and production packet.
 9. The method of claim 1, wherein sources of cashflows include any one of loan remittances, percentages of loanremittances, pool distributions, and securities.
 10. A method ofcreating a packet, the method comprising: selecting assets; applyingbusiness rules to the selected assets; mapping cash flows associatedwith the selected assets; and applying packet creation rules to form atleast one packet.
 11. The method of claim 10, further comprisingmodifying the at least one packet.
 12. The method of claim 11, whereinmodifying includes removal, substitution, or addition of cash flows. 13.The method of claim 10, wherein the at least one packet comprisesattributes, including packet type, packet state, set of assets,underlying asset type, allocation of each asset cash flow to be includedin the packet, and effective dates for each cash flow.
 14. The method ofclaim 10, wherein mapping cash flows associated with the selected assetscomprises using a graphical user interface (GUI) in which specificsources of cash flow can be selected and quantities of cash flow can beadded to the packet.
 15. The method of claim 10, wherein mapping cashflows associated with the selected assets comprises using a template bytransaction type to set default values in the packet.
 16. A system thatpackages cash flows from financial instruments, the system comprising:means for selecting assets; means for applying business rules to theselected assets; means for mapping cash flows associated with theselected assets; and means for applying packet creation rules to form atleast one packet.
 17. The system of claim 16, further comprising meansfor modifying the at least one packet.
 18. The system of claim 16,wherein the at least one packet comprises header data, a data map, andprocess instructions.
 19. The system of claim 18, wherein the at leastone packet further comprises business rules for processing cash flowsand creating packets.
 20. The system of claim 16, wherein means formapping cash flows associated with the selected assets comprises meansfor selecting cash flow sources and quantities to be added to the atleast one packet.
 21. A data construct for representing a financialasset in a data processing system, comprising: description data havingcreation, purpose, and transaction information data describing thefinancial asset; a cash flow map including information on cash flowsthat flow into the financial asset; and process instructions includinginformation on cash flow processing for the cash flows that flow intothe financial asset.